"Funding for Lending", yet another failed central bank experiment imported from Japan

In his Wall Street Journal column, Alan Blinder makes the case for the Fed to follow the Bank of England's lead in encouraging banks to lend by starting a "Funding for Lending" program.

Regular readers know that banks are awash in liquidity and fighting to achieve meaningless bank capital ratios.

So the question that should be asked is why does anyone think that access to funding is what is restricting bank lending as oppose to financial regulators crushing lending through regulation of bank capital ratios?

As the Telegraph reports about the UK "Funding for Lending" program,

[Danny Gabay of Fathom Consulting] was sceptical about the latest growth strategy of “funding for lending” to lower the cost of credit, arguing that households needed to reduce their debt by about a third – or about £440bn in current money. 

He said: “The Government wants banks to lend more to households when house prices on most metrics are still overvalued. It doesn’t sound like sensible policy to us. We need to be encouraging households to deleverage.” 

Ms [Deanne] Julius said that although it was “worth a try” she “does not have huge hopes” for funding-for-lending. 

“I met some Bank of Japan officials who said they had tried something similar and it had been another contributory factor to their zombie banks.” 

Sir John [Gieve] welcomed the effort and the indication that policy is joined-up between the Bank, the Treasury and the Financial Services Authority, but said: “I don’t think its going to make a massive difference.”

Not exactly a ringing endorsement for a program.